Luke Corporation produces a variety of products, each within its own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $$5\mathrm{.}85$ ?per case, has not had the market success that managers expected, and the company is considering dropping Bubbs.

The product$-$line income statement for the past $12$ ?months follows:

$\backslash$table$[[$Revenue$,,$$$14,700,150$

Required:

A$.$ ?Bunk stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporation allpcation $($ ?and would not affect corporate costs$).$ ?What is the minimum price Mr$.$ ?Andre can offer Bunk without reducing profit any further?

B$.$ ?How many cases of Bubbs does Like have to sell in order to break even on this product?

C$.$ ?Suppose Luke has a requirement that all products have to earn $5$ ?percent of sale $($after tax and corporate allocations$)$ ?or they will be dropped. How many cases of Bubbs does Mr$.$ ?Andre need to sell to avoid seeing Bubbs dropped?

D$.$ ?Assume all costs and prices will be the same next year. If luke drops Bubbs, how much will Lukes profits increase or decrease? Assume that fixed production costs can be avoided if bubbs is dropped.

Luke Corporation produces a variety of products, each within its own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.85 per case, has not had the market success that managers expected, and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: es Revenue Costs Manufacturing costs Allocated corporate costs (@5%) $ 14,446,395 735,008 Product-line margin Allowance for tax (@20%) Product-line profit (loss) $ 14,700,150 15,181,403 $ (481,253) 96,251 $ (385,002) All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow: Most recent year Previous year Corporate Revenue Corporate Overhead Costs $ 118,750,000 77,400,000 $ 5,937,500 4,982,315 Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs: Month 12345678902 Cases 219,000 Production Costs $ 1,159,840 223,200 1,181,340 220,900 1,189,993 240,000 1,205,535 239,950 1,207,839 249,000 1,228,685 226,250 1,203,711 253,200 1,246,786 244,800 1,245,238 258,650 1,257,337 11 256,200 1,261,772 12 265.200 1,292,463